Analysts: Google to Enter Pay TV Market in Midwest ‘Very Soon’

Bernstein’s Carlos Kirjner and Craig Moffett say the Web giant, which owns online video giant YouTube, is looking to test traditional pay TV in an admission that a “broadband-only business model is not economically viable."

NEW YORK - Internet giant Google, led by CEO Larry Page, will enter the pay TV market in the Midwest soon, Sanford C. Bernstein analysts Internet Carlos Kirjner and Craig Moffett said Tuesday.

"Recent regulatory filings make it a near-certainty that Google will enter the pay TV market in Kansas City, Kansas, and Kansas City, Missouri," he wrote in a report. "We expect Google to file for cable TV franchise licenses in both jurisdictions very soon."

He said the filings show that Google, which owns online video giant YouTube, is looking to test an entry into more traditional pay TV as broadband-delivered video still has room to develop as a business. "Google's decision to enter the video market is perhaps best viewed as an experiment in video delivery and package, but perhaps also as an admission that their original proposal of a broadband-only business model is not economically viable," Moffett argued.

Google expects to make its foray "economically viable," but Moffett has his counts. "Count us as skeptics," he wrote.

The incumbent cable provider in Kansas City is Time Warner Cable. "In the past, TWC has estimated that its KC system – which includes areas as far afield as Nebraska that are not covered by the Google build-out – accounts for less than 2 percent of its revenues," limiting its potential pain, the analyst said.

What exactly will Google offer? Last year, reports said that Google was considering to offer a cable TV-type service in Kansas City and was discussing content deals with Disney, Time Warner, and Discovery Communications. Moffett said he found little details in the filings.

But the Web giant filed an application with the FCC in mid-December to operate receive-only satellite stations. "Importantly, the application states that the receiving stations (which will be adjacent) will be located in Council Bluffs, Iowa, which the attentive reader will have noticed is neither in Kansas nor in Missouri," he said though. "However, Council Bluffs is the home of a large Google datacenter."

Moffett sees only one rationale for this: "Once received, the video and audio signals will be processed, stored and distributed in ways that require large amounts of, well, processing and storage capacity," he said.